Albertsons IPO Valued As High As $1.84 Billion
It appears that private equity firm Cerberus Capital Management has taken the express train to get its planned initial public offering (IPO) of Albertsons Companies ready to go to market. After announcing in July that the country’s second largest pure-play grocery chain was planning to go public, the company filed an amended S-1 form with the U.S. Securities and Exchange Commission (SEC) on September 25. No terms were given in the filing, but the offering is valued at up to $1.84 billion.
The company plans to file on the New York Stock Exchange under the symbol ABS. The underwriters for the offering are Goldman Sachs, Merrill Lynch, Citigroup, Morgan Stanley, Lazard, Deutsche Bank, Credit Suisse, Barclays, Guggenheim, Jefferies, RBC Capital Markets, Wells Fargo, BMO Capital Markets, SunTrust Robinson Humphrey, Telsey Advisory Group, Academic Securities, Ramirez and Blaylock Beal Van.
Now that much of the foundational work is behind them, Albertsons and Cerberus executives will begin the “road show” process, attempting to raise funds and interest in the fastest growing food retailer (in any channel) over the past two years. Several sources told us they expect the official IPO launch to occur early next year.
During fiscal 2014 and the first quarter of fiscal 2015 (excluding Safeway), same-store sales grew at 7.2 percent and 5.1 percent respectively. At Safeway, prior to the acquisition, the rate of identical store sales growth was 3.0 percent in fiscal 2014 and accelerated in the first quarter of fiscal 2015 to 3.8 percent.
In the filing, the company described its finances: “For fiscal 2014 on a pro forma basis, we would have generated net sales of $57.5 billion, adjusted EBITDA of $2.4 billion and free cash flow (which we define as adjusted EBITDA less capital expenditures) of $1.5 billion. For the 12 months ended June 20, 2015, on a pro forma basis, we would have generated net sales of $57.9 billion, adjusted EBITDA of $2.5 billion and free cash flow of $1.7 billion. For the first quarter of fiscal 2015, we generated net sales of $18.1 billion, adjusted EBITDA of $728 million and free cash flow of $513 million. In addition to realizing increased sales, profitability and free cash flow through the implementation of our operating playbook, we expect synergies from the Safeway acquisition to enhance our profitability and free cash flow over the next few years.”
On an actualized basis, for Albertsons’ fiscal year ended in February 2015, the Boise, ID retailer reported a loss of $1.2 billion on $27.2 billion in sales (excluding Safeway, whose acquisition was consummated in late January 2015).
In related Albertsons news, the company’s Acme Markets division held its annual vendor meeting last month at its corporate offices in Malvern, PA. Acme executives, led by president Dan Croce, outlined the growing chain’s priorities while also discussing the company’s pending acquisition of 71 A&P stores.
Acme, which was the largest “stalking horse” bidder for A&P, Pathmark and Super Fresh stores in Pennsylvania, Delaware, New Jersey, New York and Connecticut (the latter two states would be new operating territories for the retailer), still has to wait for the actual auction to conclude (scheduled for October 1 and 2), before final confirmation can be attained. However, Croce noted that virtually all stores have been “greenlighted” by the FTC and Acme will shortly begin the conversion/reset process.
Termed “Project Azalea,” the plan is to change over approximately 12 stores per week that began on September 28 with the conversion of the Super Fresh on Girard Avenue in Philadelphia and concluding with the last group of stores on November 17.
The former A&P stores, which parent company Albertsons/Cerberus agreed to pay $243.1 million for, range in size from 12,400 square feet (Pine Street in Philadelphia) to 67,300 square (Cottman Avenue, also in Philadelphia). Using a staggered system, all stores will close and re-open three days later. During the “dark” days, attention will be paid to cleaning all stores thoroughly, filling orders and changing IT systems.
Croce acknowledged that the physical condition of many of the A&P units presents a challenge, but he was encouraged by the attitude of the A&P stores associates, noting that they are “excited” and looking forward to the opportunity to “win” again. “They were concerned and anxious for the opportunity to better serve their customers.”
The Delaware native, who became president of Acme about seven months ago, began his career with A&P 30 years ago before joining Acme in 2005. He told the more than 350 vendors in attendance (a packed house) that Acme will be relying on them to help ease the conversion process.
As for the general business meeting, Croce reiterated the company’s mantra of “sell, sell, sell,” and noted that even with the tremendous growth of the entire Albertsons organization, CEO Bob Miller’s decentralized go-to-market plan – where each division is responsible for growth, assortment margins, costs, customer service, merchandising and operations – remains very much in place.
Croce said that during the next 12 months, more Pennsylvania stores will offer beer and that new stores and major remodels will occur in Sea Isle, NJ (a “from the ground up” replacement similar to the successful new Long Beach Island unit, which opened in May); Newtown, PA; Paoli, PA; and Ridley Park, PA.
Also addressing the vendors at this year’s meeting was Kim Gray, VP-merchandising and marketing, who noted that Acme will become even more aggressive in its feature pricing and increase its community involvement. He urged the suppliers in the room to develop stronger trade partnerships with Acme, adding that Acme’s fresh and center store areas continue to post strong ID sales gains. “We have met our budget in every quarter since the new regime has taken over (March 2013).”
Director of marketing Sherry Caldwell updated the audience on Albertsons’ national programs as well as Acme’s progress on digital and social media. A new blog with weekly email blasts called “The Dish” will shortly be unveiled featuring recipes and new product offerings.
In his usual humble manner, Croce told the vendors: “It ain’t grandma’s Acme anymore. We’re grateful for the loyalty and looking forward to the future.”
And one more note about Albertsons. A tip of the hat goes out to Albertsons executives Shane Sampson and Jim Perkins and division presidents Steve Burnham (Safeway), Dan Croce (Acme) and Jim Rice (Shaw’s/Star Markets) for their roles in last month’s Jewel/Osco Acme Shaw’s Classic, which was held this year in Boston. Along with the aforementioned executives, the entire Albertsons team made the vendors feel very much at home by providing a great evening at Fenway Park and wonderful day of golf at two of New England’s finest courses – Brae Burn and Charles River. More importantly, a lot of money was raised for charity. Good work, everyone!
‘Round The Trade
Just before presstime, Sam Duncan announced his intention to retire as president and CEO of Supervalu on February 29, 2016, following the end of the company’s fiscal year. Duncan was named to those posts in February 2013 in connection with the sale by Supervalu of five retail grocery banners to Albertson’s. Under Duncan’s leadership and direction, the Eden Prairie, MN-based wholesaler/retailer has repositioned its three core business segments: independent business, Save-A-Lot and its five remaining regional retail food banners (Shoppers, Farm Fresh, Cub, Shop ‘n Save and Hornbacher’s), as well as helped deliver increases in shareholder value. Duncan, 63, said he is retiring to spend more time with his family in the Pacific Northwest. “Supervalu is a terrific organization and we have accomplished a great deal together during the past two and one half years,” said Duncan. “I have thoroughly enjoyed working with our employees and thank them for all of their hard work and dedication. I am also looking forward to finishing the year strong and continuing to drive sales and cash through my remaining time at the company, as well as providing time and support to ensure a smooth transition for my successor. After 46 years in the grocery and retail business, this is a bittersweet moment, but I am also excited by the opportunity to have more time for my family and personal interests following my retirement.” In a related announcement, SVU also announced that Bruce Besanko has been promoted to the newly-created role of executive VP/chief operating officer, reporting to Duncan, and that Susan Grafton has been promoted to executive VP/chief financial officer, reporting to Besanko. Both appointments are effective immediately. In his role as COO, Besanko will retain oversight of the finance function, and assume oversight of the Supervalu’s independent business operations, its regional food chains, and the company’s merchandising, marketing, and pharmacy functions. Supervalu said that Duncan’s impending retirement will not impact its continued exploration of a separation of its Save-A-Lot business. On a personal note, I have to say that no food industry executive has performed at a higher level than Duncan has for the past three years. He took a lifeless, moribund company and rebuilt it into a progressive and ambitious enterprise that treated its associates with respect and valued their opinions. After previous CEOs Jeff Noddle and Craig Herkert had spiritually bankrupted a once great organization, I didn’t believe Supervalu’s making it back to even sea level was possible. Sam Duncan’s achievements, both measurable and intangible, represent one of the greatest industry performances I’ve witnessed in my 42 years of writing about the grocery business…Whole Foods announced that it will cut 1,500 jobs, or 1.6 percent of its work force, over the next eight weeks in an effort to reduce internal costs and invest more heavily in price. The Austin, TX-based natural/organics merchant said most of riffing will primarily come at store level and that associates who are affected could apply for other jobs within the organization where it has 2,000 open positions and is currently developing about 100 new stores. In a statement, co-CEO Walter Robb said that “this is a very difficult decision, and we are committed to treating affected team members in a caring and respectful manner. We have offered them several options including transition pay, a generous severance, or the opportunity to apply for other jobs. In addition, we will pay these team members in full over the next eight weeks as they decide which option to choose. We believe this is an important step to evolve Whole Foods Market in a rapidly changing marketplace.” Although they have not publicly acknowledged it, this move smells of WFM’s desire to demonstrate to Wall Street that it can make hard business decisions when it needs to. The company’s stock has taken a huge hit in the past seven months (its share price closed at about $31 per share as compared to $58 per share in February 2015) and the retailer was embarrassed by a “short weight” scandal at its New York City stores this summer. Analysts have also expressed skepticism about the merchant’s new value-priced, millennial-seeking alternative store format – “365” – which will debut next year. As for me, I’m still a believer with reservations. There’s no doubt that as the company has gotten larger (it now operates about 425 stores with a target of 1,200 units in the U.S.), the caliber of its employees coupled with its overall in-store execution has waned. However, I believe the company will learn from some of its mistakes of the past year – especially in developing a better strategy to deal with Wall Street. Don’t forget, this is one of the few times that it has had to deal with adversity. Challenges aside, my long-term confidence in Whole Foods primarily stems from its still strong link with those millennials and Gen-Yers who comprise the majority of its customer base. While most other conventional supermarket operators aggressively seek to grow their business with those 18-35 year olds (with mixed success), WFM’s DNA still connects strongly with the age group that all retailers deem most desirable. Whole Foods doesn’t need to fish for those customers, they are already in the house…after the book, “We Are Market Basket” – which details last summer’s tale of the feuding Demoulas family – was released last month, a movie version about the intra-family dispute called “We The People: The Market Basket Effect,” debuted at the Boston Film Festival. The 82 minute film is narrated by actor Michael Chiklis and produced by Ted Leonsis, owner of the Washington Capitals and Washington Wizards. Both Chiklis and Leonsis hail from Lowell, MA where the now svelte sports owner began his successful entrepreneurial career as a bagger for the Demoulas family…Kroger has realigned its senior level management team. Four senior VPs have been promoted to EVP, including: Fred Morganthall, former Harris Teeter president, who will now supervise all retail operations; Mike Donnelly, who now becomes EVP-merchandising; Mike Schlotman, who remains CFO and becomes an EVP; and Chris Hjelm, who now becomes EVP and CIO. “Kroger is fortunate to have an exceptionally strong group of leaders across our company. Our entire senior leadership team brings unmatched depth and experience to achieve our goals. This new organizational structure will help Kroger achieve laser-focus to accelerate growth, improve our connection with the customers and deliver value for our shareholders,” said company CEO Rodney McMullen. And late last month, the nation’s largest pure-play supermarket company hosted its “leadership summit” in Cincinnati, which was attended by more than 5,000 associates including every store manager as well as associates from virtually all segments of its business – office workers, employees from its distribution center and from Kroger’s manufacturing facilities…at Wal-Mart, the news continues to be less than joyful. Flat earnings and mediocre ID sales have led to the Behemoth laying off 500 works at its Bentonville, AR headquarters. Additionally, we’ve heard from several national suppliers who have complained that the Bentonville Behemoth is squeezing them harder than ever by demanding storage fees for space at its distribution centers and for shelf space in its stores. Wal-Mart had previously stated that it was refining certain aspects of its vendor relationships in order to create equality with all suppliers and reduce costs so it can offer its customers the lowest prices. Vendors see it differently. “This is just another squeeze play to increase margins and most likely offset wage increases (to $9 per hour) it offered to its store associates earlier this year,” said one senior VP of a large CPG firm. And, speaking of wage hikes, which are expected to cost Wal-Mart about $1 billion annually, numerous reports have surfaced that the world’s largest retailer has been reducing the nu
mber of hours at its stores in an effort to improve expense control. Kory Lundberg, a Wal-Mart spokesman, said the labor cutbacks are only taking place in locations where managers have over-scheduled workers, adding that the hourly reductions won’t affect efforts to better staff stores, shorten checkout lines and improve cleanliness and stocking. Shorten checkout lines? Improve stocking? I’m still chuckling.
Local Notes
An important change to Maryland’s Food Supplemental Program (food stamps/SNAP benefits) began last month. The program’s eligibility has been expanded from 10 days to ultimately 24 days per month. Those who qualify for the program will continue to get their benefits, but they day they receive them will change based on an alphabetical order, with those whose name are at the end of the alphabet receiving their benefits later in the month. When the phase-in is complete in January 2016, SNAP benefits will be available from the 4th through the 27th of each month. Thanks are due, in large part, to the hard work of retailers Benjy Green, B. Green & Co. and Howard Klein, Klein’s ShopRite, who have spent several years working with the Maryland Department of Human Resources on spreading out the eligibility dates of the state’s food assistance program. The new rules will allow merchants to better plan their labor schedules (potentially less overtime) and create more balanced weekly ads throughout the month.. more locally, Baltimore Mayor Stephanie Rawlings-Blake has introduced legislation that offers 10-year tax breaks to supermarkets that build or renovate supermarkets in designated food deserts in the city. If passed by the City Council, the proposed bill would give qualifying supermarkets an 80 percent discount on the personal property taxes for 10 years. Retailers would have to spend $150,000 or $25 per square foot to qualify. While this is certainly positive news, there hasn’t been much of that for retailers who have operated stores in Baltimore City during Rawlings-Blake’s current five year run. But happier days may be coming, especially since Rawlings-Blake has recently stated that she will not seek another term next year. Good riddance to Ms. Mayor whose aloof operating style and anti-business attitude have angered merchants for years…I recently watched the new video documentary – “Lessons in Leadership” – about the remarkable life of Food Lion (Food Town) founder Ralph Ketner, one of a handful of executives who helped reshape food retailing over the past years. The 51-minute documentary will become a part of the high school curriculum in North Carolina. While Le Lion is beginning to regain some of the mojo that Ketner created when he founded the company in 1957, it’s a shame that much of that energy and drive to offer very low prices to its customers was lost for many of the years of Delhaize’s ownership, which acquired Food Lion in 1974 and is now in the process of merging with Ahold USA…Trader Joe’s will open its third District of Columbia store in 2017 when it cuts the ribbon on an 11,000 square foot unit at 750 Pennsylvania Avenue, SE, near the Eastern Market…After many years as a Safeway sponsored event, Giant/Landover has acquired the title rights to the National Capital Barbecue Battle, which will now be called “Great Barbecue Battle.” Next year’s event will be held June 25-26 along Pennsylvania Avenue in the District. Giant will market its new affiliation by offering customers month long promotions at all of its 168 stores next June…Several obituaries to note this month: just before presstime we learned of the passing of Tom Bleakley, veteran food brokerage executive, who I first met shortly after Dick Bestany and I acquired Food World in 1978. Simply said, Tom was one of the kindest, most generous people in the industry. He waged a courageous battle with many health issues for the past several years. May you finally rest in peace, my friend…other deaths of note include the passing of the legendary Lawrence Peter “Yogi” Berra. One of the greatest characters of all time, Berra, 90, led the New York Yankees to an incredible 10 World Series championships, while also serving as the heart of that dynasty which ran from the late 1940s to the early 1960s. Among his other achievements, Berra was selected to the All Star game for 15 consecutive seasons and was a three-time American League MVP. He was also perhaps the most clutch World Series player of all time and still holds the record for most games played, plate appearances, hits and doubles in the Fall Classic. Of course, the legend of Yogi Berra continued beyond his playing days because of his unique wordsmithing abilities. My favorite “Yogisms”: “When you come to the fork in the road, take it,” he said giving directions to his house (either path would have led to his house); “Nobody goes there anymore, it’s too crowded,” (regarding a very popular restaurant at the time); and “You can observe a lot by watching”… also passing away was Jimmy Olsen. Actually, Jack Larson, the young actor who portrayed the bumbling cub reporter on “The Adventures of Superman” TV series (1952-1958) has died at the age of 87. After virtually quitting acting after he found his stereotypical character made it difficult to find acting jobs, Larsen later became an award-winning playwright and producer. I can still hear Olsen’s “Golly, Mr. Kent” playing in my head…and finally, we report the passing of Daniel Thompson. Daniel Thompson? He’s the man who in 1968 invented the automated bagel machine (Murray Lender was one of his first clients), which was a catalyst in the mass production of the tasty pastry. Thompson, 94, also invented the wheeled, folding Ping Pong table, a fixture in many households (mine included) for more than 50 years.
